Personal Finance

Applying this rule is the secret to guilt-free shopping, expert says

Published

5 hours ago

November 29, 2024

Business Finance News

Shoppers carry their purchases on Black Friday in New York City on November 29, 2024.

Adam Gray | AFP | Getty Images

When Bernadette Joy graduated with an MBA in 2016, she and her husband had around $300,000 in debt, including student loans and mortgage balances.

By 2020, they were debt free.

As Joy sought financial independence, the financial tips she found — “eat beans and rice; don’t have any fun; shopping is terrible” — didn’t resonate with her.

Instead, Joy found more creative ways to shop without feeling guilty. That led her to come up with a method she calls “The $1 rule,” which she details in her new book, “Crush Your Money Goals.”

“The $1 rule is my twist on cost per use or cost per wear,” said Joy, who is a financial coach and debt repayment expert. “But I simplified it even more to say, it’s OK to buy something if it comes out to $1 per use.”

For example, when a friend was looking to buy an expensive couch, Joy used the $1 rule to help him figure out it would be worth it as long as he kept it for five years and used it daily.

The rule has also helped Joy personally avoid buying low-quality items or things she won’t use often, she said.

She had her eye on a warming dish to use when entertaining, for example, and realized the $30 cost wouldn’t justify the two times per year she would likely use it.

The “$1 rule” can also be very helpful during the holidays when you are trying to buy gifts for people they will really enjoy, she said.

Joy said she uses the rule whenever she buy gifts for people, thinking, “Is this something that they would use a lot?”

Impulse purchases can lead to regrets

A record 183.4 million people are expected to shop both online and in-person in the five days from Thanksgiving through Cyber Monday this year, according to the National Retail Federation.

More than half of consumers — 57% — say they plan to shop then because of deals that are too good to pass up, the industry organization found in a recent survey.

Good deals can lead to impulse buying, according to recent research from Bankrate, which found 54% of adults made at least one spur-of-the-moment purchase last holiday season.

However, those impulse purchases can lead to regrets.

A separate Bankrate survey on online purchases prompted by social media found 57% of consumers regretted at least one of those transactions.

Consumers spend record $6.1 billion online during Thanksgiving day

It’s OK to indulge occasionally, so long as you have made room for it in your budget ahead of time, said Ted Rossman, senior industry analyst at Bankrate.

“You don’t want to still be paying off this holiday season a year from now,” Rossman said.

To that point, 28% of people are still paying off credit-card debt from the 2023 holiday season, NerdWallet found.

Overspending can still be a reality for many households, since prices have gone up 20% since the beginning of 2021, while wages have only gone up an average of 17% in that time, he said.

While interest rates have come down, the average credit card rate is still about 20.4%, according to Rossman.

Take a pause before buying

To help avoid expensive purchases that may lead consumers to carry credit card balances from month to month, it can help to take a moment and pause before making a purchase, Rossman said.

Meanwhile, other shopping tips can help you get the most for your money this holiday season.

Choosing an experience instead of material things can make the holidays more memorable, Joy said. For example, instead of a “Secret Santa” gift exchange, friends can plan a group outing.

While retailers may put on the pressure with time-sensitive offers, “there’s a good chance there’s going to be another sale behind it,” Rossman said.

When making a purchase, be sure to pay attention to whether the total cost works within your budget, particularly if you’re using an installment plan like buy now pay later, Rossman said.

And be sure to compare to see whether a particular retailer is truly offering the best deal, he said. Price trackers like Camel Camel Camel for Amazon can help show you how a sale compares.

Personal Finance

Student loan borrowers may face higher payments under Trump

Published

4 hours ago

November 29, 2024

Business Finance News

Tomas Rodriguez | Corbis | Getty Images

President-elect Donald Trump has made his dislike for student debt relief clear. Experts expect he will abandon or roll back many of the Biden administration’s student loan efforts — which on the campaign trail he called “vile” and “not even legal.”

Assuming the Trump administration abandons the U.S. Department of Education’s new affordable repayment plan, known as SAVE, borrowers enrolled in it will have to shift to a different repayment plan with significantly higher monthly payments.

SAVE was supposed to cut in half monthly bills for millions of federal student loan borrowers.

“For those worried about SAVE going away, I think it probably will, unfortunately,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that helps borrowers navigate the repayment of their debt.

SAVE has already been temporarily suspended by a federal court, after legal challenges brought by Republican attorneys general in Kansas and Missouri. In the meantime, the Biden administration has put SAVE enrollees into an indefinite administrative forbearance in which they don’t owe anything on their debt.

When Trump returns to the White House in January, borrowers enrolled in SAVE should be prepared for that forbearance to come to an end, said Malissa Giles, a consumer bankruptcy lawyer in Virginia.

The incoming administration is “not bound by the position of the prior administration,” Giles said.

If the Trump administration doesn’t continue to defend the SAVE plan in court or the Republican-controlled Congress scraps it entirely, borrowers are likely to see their bills revert to their prior levels, Giles said. For some, bills could be double what they would have paid under SAVE.

“I cannot imagine the stress that will be put on folks,” Giles said.

President Joe Biden rolled out the SAVE plan in the summer of 2023, describing it as “the most affordable student loan plan ever.” SAVE replaced the Education Department’s former REPAYE option, or Revised Pay As You Earn plan.

Around 8 million borrowers signed up for the new income-driven repayment, or IDR, plan, according to the White House.

Under IDR plans, borrowers’ monthly payments are set based on a share of their discretionary income. They receive forgiveness after a certain period, typically 20 years or 25 years.

The SAVE plan had the most generous terms to date.

Instead of paying 10% of their discretionary income a month toward their undergraduate student debt, as they did under REPAYE, borrowers needed to pay just 5%. Those who earned less than roughly $15 an hour had a $0 monthly bill, and borrowers with smaller balances were entitled to loan forgiveness on an expedited timeline — in as little as 10 years.

Republican-backed states argued that the Biden administration overstepped its authority with SAVE, and was using the plan as a roundabout way to forgive student debt after the Supreme Court blocked its sweeping loan cancellation plan last year.

Before the legal challenges, the Education Department had already forgiven $5.5 billion in student debt for 414,000 borrowers through the SAVE Plan.

Proponents of the relief plan argue that student loan borrowers need more affordable repayment options. Nearly a third, 30%, of the borrowers say they’ve gone without food, medicine or other necessities because of their monthly bills, according to a new survey by the Consumer Financial Protection Bureau.

More people will be forced to make these hard decisions if SAVE goes away, Giles said.

“What challenges are people going to [face] when their payments double?” she said. “It’s a crazy hot mess.”

Personal Finance

Why consumers overspend during the holidays — and what to do about it

Published

7 hours ago

November 29, 2024

Business Finance News

Betsie Van Der Meer | Digitalvision | Getty Images

The holiday season is a time to give thanks, reflect on the past year, and spend time with family and friends. However if you’re not careful, it can also be a time you overspend on holiday purchases.

About 83% of Americans plan to buy gifts for friends and family this holiday season, according to a recent NerdWallet poll.

Americans expect to spend an average $1,014 on Christmas or other holiday gifts in 2024 — “substantially more” than the $923 reported last year, according to a Gallup poll published Oct. 25.

Roughly 10% of consumers expect to draw from their emergency fund to buy gifts, and 9% will prioritize gifts over household bills like utilities and debt payments, according to the NerdWallet survey.

Almost half of shoppers will fund this year’s spending with loans or credit cards, according to a recent EY survey. Meanwhile, 28% of people are still paying off credit-card debt from the 2023 holiday season, NerdWallet found.

People have an innate impulse to overspend, experts say. They are “wired” to be consumers, said Brad Klontz, a psychologist, certified financial planner and behavioral finance expert.

“For 99% of our time on earth, thinking about the long-term future hasn’t served us very well,” said Klontz, who is a member of CNBC’s Financial Advisor Council and the CNBC Global Financial Wellness Advisory Board. “Meeting our immediate needs was what it was all about.”

The short-term gratification of giving gifts to loved ones can eclipse the long-term focus that’s needed to be good with money, Klontz said. That’s where many people fall short, he said.

“We can overspend because our long-term goals are much more abstract, and it actually requires us to do extra levels of cognitive processing to delay instant gratification,” he said.

Additionally, consumers may feel the social pressure to spend more than they might like because they don’t want to appear “cheap,” said Andrea Woroch, a consumer finance expert.

Many companies also promote deals — on Black Friday and Cyber Monday, for example — that can create a “buying frenzy,” she said.

How to avoid overspending during the holidays

Cavan Images | Cavan | Getty Images

There are various ways for consumers to keep their holiday tabs within a reasonable range, experts said.

Here are some of their tips.

Develop a spending plan now around how much to allocate to the holiday season, Klontz said. It’s not too late, even over Black Friday weekend. Consumers can use a gift list tracking app like Santa’s Bag to track purchases and actual spend, Woroch said.

Think beyond gifts, Woroch said. There are many other potential seasonal expenses, including groceries to feed out-of-town guests or for holiday feasts, holiday party attire, family photos, greeting cards and postage, seasonal outings, dinners with friends, fundraising events at your kids’ school and donation drives. You may need to cut back on certain costs or spend less on gifts to accommodate these, she said.

Expect a 'resilient' holiday for retailers, says Dana Telsey

Set gift expectations with family and friends now, Woroch said. This may mean focusing on kids only or setting up a “Secret Santa” exchange so you’re only responsible for one gift rather than many, she said. Instead of a physical gift, perhaps find an activity to do together instead. Or, set a gift budget, suggesting a lower amount this year, Woroch said.

Tap into free rewards to offset gift costs, Woroch said. For example, she recommends signing up for free retail loyalty programs to earn money back to use towards other gift purchases; shopping through cash-back portals like CouponCabin.com or Rakuten for online purchases; and downloading a browser extension like Fetch to earn rewards or free gift cards.

Take time to reflect on your long-term goals that “really matter to you,” Klontz said. This can help rein in the impulse for short-term purchases.

Personal Finance

56% of Americans say their parents never discussed money with them.

Published

2 days ago

November 27, 2024

Business Finance News

10’000 Hours | Digitalvision | Getty Images

As families gather for Thanksgiving this year, money is one topic that likely won’t be discussed.

Yet experts say it’s a perfect time to start the conversation, particularly with aging parents.

More than half of Americans — 56% — say their parents never discussed money with them, according to a recent Fidelity survey of 1,900 adults ages 18 and up.

One reason is that many people have a complicated relationship with money and wealth.

Most Americans — 89% — said they do not consider themselves to be wealthy, Fidelity found. For many, the definition of being wealthy is just not having to live paycheck to paycheck.

For the wealth they do have, most Americans say they accumulated it on their own, with 80% identifying as self-made and only 5% saying they inherited it, Fidelity found.

The fact that many people have relied on themselves, especially older Americans, may help explain why many don’t feel the need for more formal financial planning, according to David Peterson, head of advanced wealth solutions at Fidelity.

One-third of baby boomers don’t feel having a financial plan is necessary, Fidelity’s survey found, which is the most of any generation.

“They have sort of go your own way mindset, and that’s probably why they keep a lot of this just to themselves,” Peterson said.

Yet experts say that not having a plan in place can leave individuals and their families vulnerable when unexpected events happen.

If you know what your parents want, have it written down and know where things are, it makes things much smoother in the event a parent passes, gets sick or starts showing signs of dementia, said MaryAnne Gucciardi, a certified financial planner and financial advisor at Wealthmind Financial Planning in Cambridge, Massachusetts.

“You want to catch things early and proactively and preemptively, so that you know what they want and you can advocate for them,” Gucciardi said.

The holidays are an excellent time to start conversations about family finances, Gucciardi said. But those discussions can also take place whenever there’s a group gathering where siblings and children can also be involved, she said.

How to get the family money conversation started

Research has found money is consistently one of the topics Americans would rather not talk about.

A recent U.S. Bank survey found more people would rather reveal who they were voting for in the presidential election than talk about their finances. Other research from Wells Fargo find discussing personal finances almost as difficult as talking about sex.

To get the conversation started with aging parents, experts say it helps to start small.

“Don’t go into it thinking that you’re going to solve it all this particular holiday,” Peterson said.

To kick off the conversation, you may want to talk about your own estate plan and ask for their advice on anything you’ve missed, he said. That way, you can get a sense of how far along they are in the process, Peterson explained.

It can also help to bring up examples of friends or family who died with estate plans that were either organized or in disarray, and how that affected their loved ones who were left behind.

“What I like to do is start with small topics and build up to the bigger topics,” Peterson said.

Peterson explained that wealth can be transferred through asset titling or beneficiary designations. But for assets that do not pass that way, you need a will, he said.

Without that planning, you leave it up to the state probate process. When someone dies without a will, also known as dying intestate, a state’s intestate succession laws determine what happens to their assets.

“The question is, do you want to be the one making the decisions?” Peterson said. “Usually, when you ask it that way, you get an answer that suggests that they want to be the ones in charge.”

Family Matters: Successful Estate Planning

In addition to a will, it helps to have other documents in place, such as a health care directive, power of attorney and HIPAA authorization in the event a parent’s health declines, Gucciardi said.

If those documents were not established recently, you may want to revisit them to make sure they’re up to date, she said.

Often, people have accumulated assets over their lifetimes and lose track of them, such as savings bonds or insurance policies, Peterson said. It helps to create a central location where all of that will be stored, either physically or digitally. Bank safe deposit boxes should be avoided, since they can be difficult for loved ones to access, he said.

With more assets stored online, it’s also important to ask about access to online financial, subscription and social media accounts, Gucciardi said. Using a password manager can help ensure those assets are secure, she said.

As families engage in these conversations, it may be best to start small with one area, such as health care preferences, and then build from there, she said.